The connectedness between meme tokens, meme stocks, and other asset classes: Evidence from a quantile connectedness approach

Abstract

The recent influence of the meme stock and meme token phenomena have raised new challenges for investors and policymakers. We examine the quantile connectedness between meme stocks, meme tokens, and traditional financial assets such as stock, gold, oil, U.S. dollars, and U.S. Treasuries. We find that meme stocks and meme tokens exhibit a time-varying connectedness with traditional financial assets that varies across quantiles. We observe the highest connectedness between meme stocks, meme tokens, and traditional financial assets at the extreme upper and lower quantiles. This highlights the importance of tail connectedness analysis. At the upper extreme quantiles, meme stocks and meme tokens are the drivers of shock transmissions, suggesting that price bubbles or market short squeezes in these meme assets can be contagious to other markets. At lower extreme quantiles, meme stocks and meme tokens are the shock receivers, while gold and Treasury bonds are shock transmitters. This is consistent with investors fleeing to quality under extreme negative market conditions. Our findings provide useful information to regulators, retail investors, and institutional investors regarding portfolio risk management and financial market stability in the extreme and normal market conditions.